Friday, September 01, 2006

What Market Economy does Liberia practice?

I raise this question because of the rice and cement situation mainly, and for the numerous goods and services, Liberians consume but do not produce substantially for local consumption.

The one commodity that shaped the country to what it is today is still been used as a pawn by politicians that have raised questions in all quarters of the populace.

It is my conviction that the government should grant all persons who want to engage in any form of business the license to do so. Why grant only a limited amount of business entities the sole right to import rice and deny others from doing it. Take a look around you. Let us use the mobile phone situation as an example. One company was granted the sole proprietorship to engage in mobile phone services. The cost for the service was exorbitant and the service was substandard. After the service was open to others, the cost was dropped down and the services have improved; moreover, the consumers now have choices of services. That is free market in a layman sense.

Cement: Consumers waited for months to get a fraction of their desired consignment, long lines at cement stations, artificial shortage that sky rocketed the prices and the list goes on. Now I understand the right to import cement has been granted to the business public. No more long lines, no more artificial shortages, no more months of delay and I believe the price is now right for the consumers.

One key word to the consumer in all of this rigmarole is choice. When consumers have the ability to make choices, everyone wins. Choice may equate to price, and the two other words that follow choice will be supply and demand. The below information will enlighten you on the free market economy concept and the philosophy of Adam Smith.

A free market economy is an economy in which the allocation for resources is determined only by their supply and the demand for them. This is mainly a theoretical concept as every country, even capitalist ones, places some restrictions on the ownership and exchange of commodities.

A free market is a market where price is determined by the unregulated interchange of supply and demand. This is in contrast to a controlled market where supply, demand, and price are set directly by government. According to a more philosophical definition, a free market is a market where trades are morally voluntary and therefore free from the interference of force and fraud. The notion of a free market is closely associated with laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Hence, with government force limited to a defensive role, government itself does not initiate force in the marketplace and the free market is preserved. It also creates a self-sustained government.

A market economy (aka free market economy and free enterprise economy) is an economic system in which the production and distribution of goods and services takes place through the mechanism of free markets guided by a free price system rather than by the state in a planned economy.

A market economy has no central coordinator guiding its operation, yet theoretically self-organization emerges amidst the complex interplay of supply and demand and price regarding a multitude of goods and services. Supporters of a market economy generally hold that individuals pursuing their self-interest through trade has the incidental effect of bringing about a spontaneous order that is effective in supplying the greatest abundance of goods for society and in the most efficient manner.

A market economy is based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.

Characteristics of a Free Market Economy

In a pure free market economy, the three economic questions would be answered by the individual buyers and sellers acting independently in the market place. In order for this system to function, the following principles must be present:

Private Ownership and the Freedom to Buy and Sell. The goods and services must be able to be owned by individuals who are free to buy them or sell them at the best price they can get.

Free Competition. Sellers of goods and services must have the freedom to sell whatever they want for any price. There must be competition between firms in order to keep prices low.

Prices are set by the Forces of Supply and Demand. The prices of goods are set by how much of a given good is available and how much the consumers want to buy it.

Consumer Sovereignty. Consumers must make the decisions about what a society will produce. They make these decisions by buying products. Every time a consumer buys something, he/she is voting with money.

Profit Motive. Businesses will try to make as much money as possible. They will only be able to do this by providing the goods and services that the people in the society want and need. Adam Smith, the famous free market economist, called this "the invisible hand" which guides individual businesses to serve the best interests of society by providing the goods and services demanded by the people.